How rich are you? It’s not a question most of us have cause to ask ourselves, but the answer may be somewhat more positive than you would have thought.
To calculate your net worth, subtract all your debts (mortgage, loans, etc) from your assets (pension fund, investments, mortgage-free property, home equity, etc).
Despite stagnant incomes, a higher tax burden and the ongoing drain of negative equity, Irish households are in a better financial position than one might expect. The Central Bank, for example, calculates that each Irish household has a net worth of more than €135,000, putting us among the richer European nations.
Property, of course, is still a major contributor to household wealth, according to the Central Bank, but a shift away from that old reliable is happening. We still carry too much debt. And while income inequality is not as bad as in other richer nations such as the US, it should be seen also as a growing problem in Ireland.
Richer than the Germans
According to latest figures from the Central Bank, the average Irish household had a net worth of €135,078 as of the end of 2015, up 1.4 per cent on the quarter, giving a total household net worth of €626.1 billion. This figure is calculated by subtracting household debt from household assets.
On the basis of other figures from Credit Suisse (based on OECD data and the Central Bank numbers), Ireland's average household net worth is considerably higher than the Central Bank figure: €170,513.
Our wealth is still off the peak reached in 2007, when the total breached €700 billion, but the current figure marks a significant improvement on the post-bust nadir of €444 billion in 2012.
Rising house prices are obviously a major part of the recovery, but a reduction in debt is also a factor.
This relative recovery means that, on the basis of the Credit Suisse figures, our household wealth is now greater than Germany’s (possibly due to lower home ownership there), Spain and the Netherlands, as well as, surprisingly perhaps, the oil rich nations of UAE and Saudi Arabia. However, nations such as the US and UK have considerably higher household wealth.
There is also a salutary tale in the experience of Argentina, which famously burned its bondholders and has only now, some 15 years after its debt crisis, returned to the global debt markets. Its average household has wealth of less than €10,000, while the median is less than €2,000.
Looking a little further into the figures is revealing, especially at the “median”, or the middle wealth value. More people would have wealth around this figure than they would at the mean, or the average figure, which is typically higher due to the impact the extremely wealthy have on pushing up the average.
In Ireland, the median is around the €56,450 mark, according to the Credit Suisse figures. That may be a truer reflection of typical household wealth around the State. This puts us in fifth position of the 13 countries surveyed, again ahead of Germany and, more notably, of the US.
While the average household wealth in the US is north of €300,000, the median figure is just €43,000, indicating the scale of income inequality across the Atlantic.
Less reliant on property
One element to note in the recent Central Bank figures is that, as a nation, we have become less reliant on property.
Back at the peak of our household worth – €718 billion in the spring of 2007 – some two-thirds of our household worth was held in property; today that figure has fallen to 55 per cent, thanks to an increase in importance of financial assets such as stocks, bonds, deposits and pension funds, which now account for 45 per cent, up from 34 per cent in 2008.
It’s a significant change, given that, when the Central Bank first began collecting the data in 2002, the average Irish household’s wealth was still tied up in property, at 60 per cent compared with 40 per cent in financial assets.
Many would say that diversifying out of property and into stocks and bonds is a welcome development, given the State’s near implosion as a result of the property crash. It may also be a sign of a maturing economy. In the UK, for example, just 39 per cent of household wealth is tied up in property.
We haven’t, however, become a nation of renters – at least not yet
In its report The Financial Position of Irish Households, which was published last year but relates to the position 2013, the Central Bank finds that home ownership rates are of the order of about 70 per cent in Ireland. That's down from 80 per cent in 1991, but still high.
The EU average, for example, is 60.1 per cent, while in Germany the rate is as low as 44 per cent. But we’re not alone as an outlier: Slovakians also love to own their own homes, boasting property ownership rates as high as 90 per cent.
Despite the much-touted switch from owning to renting, the figures show that fewer of us rent (29.5 per cent) than is typical across the EU (39.9 per cent). At least in 2013.
Given the lack of activity in the mortgage market of late, rising rents don’t appear to be a deterrent to staying in the sector, and so one could reasonably expect the proportion renting to continue to rise.
What we owe
Among homeowners, the Irish still owe more on their mortgages than is the norm across the EU –a legacy, perhaps, of 100 per cent mortgages and property investment hysteria.
More than a third of us (36.6 per cent) own our homes outright, but this is lower than the EU average of 40.7 per cent. A further 33.9 per cent own a home with a mortgage on it, considerably higher than the EU average (19.4 per cent).
While the wealth of the Irish has moved away from property, we haven’t thrown ourselves into riskier financial assets such as stocks and bonds. According to the Central Bank data, some 89 per cent of us have a deposit account, but just 27.9 per cent of us have investments other than deposits.
This is not too different from European norms, where 96.4 per cent have deposit accounts. Greece is the notable outlier, with less than two-thirds of its population reporting keeping deposits.
On household debt, the good news is that the figure for Irish households has plummeted from its 2009 peak of more than €200 billion, as consumers increasingly shun new loans in favour of paying down existing debt.
Nonetheless, it hasn’t disappeared, and Irish households still owe some € 150 billion. This means that too many of us still carry significantly more debt than our European peers.
Indeed, figures for end-2015 show that Ireland has the third highest debt-to-income ratio in Europe, at 155 per cent, behind Denmark (253 per cent) and the Netherlands (215.2 per cent). This puts it substantially higher than the UK (127 per cent) and even Portugal (113 per cent) and Spain (106 per cent). It also means that the average Irish household owes almost double that of the typical German one.
As elsewhere across the world, and as espoused so forcibly by economist Thomas Piketty in Capital in the Twenty-First Century, wealth distribution is also problematic in Ireland.
The report from the Central Bank found that income distribution in Ireland is better than in the US – faint praise, perhaps, given the position in the US – and is “somewhat” less equally distributed than in Europe.
In particular, the report found that a greater concentration of net assets is held by the wealthiest households. So the top 20 per cent of Irish households account for half of gross income. But when it comes to wealth rather than income, the top 20 per cent of households account for about 70 per cent of net assets.
The evidence suggests that this gap may widen further, as the rich get richer at a faster pace than others.
The 1 per centers
A 2015 report by left-wing economic think tank Tasc found that the income share of Ireland’s top 1 per cent – households with incomes of more than €200,000 – has nearly doubled since the 1980s. Indeed, based on 2009 figures (the most recent available), more than 35,000 people earned more than €200,000 a year, the majority of whom (57 per cent) were in dual-income couples.
That top 1 per cent now has 14.8 per cent of the country’s wealth and 9 per cent of gross income. The report also shows that while average incomes doubled in Ireland from 1975 to 2009, the average for the top 10 per cent more than tripled, and the average for the top 1 per cent went up fivefold.
Even so, this is not as inequitable as in the US, where the top 1 per cent now holds over a fifth of all income (22.5 per cent)
And the rich are likely to keep getting richer. A report from Knight Frank earlier this year predicted that some 22,000 millionaires will be created in Ireland over the next 10 years. It also revealed that more than 200 Irish people will enter the realm of the “ultra high net worth individual” – those with investable assets of more than $30 million.
With a growth rate of 28 per cent, Ireland’s rich are getting richer at a faster rate than in Spain (14 per cent), Portugal (18 per cent) and France (15 per cent), according to the report.